Thursday, April 7, 2011

More on "Holding Low Income Families Harmless"

One of the central claims made by proponents of the New Badger Partnership is that the policy will maintain or even enhance access to Wisconsin's public flagship by holding families making less than $80,000 harmless from tuition increases.

That claim relies on several assumptions:

(1) Families understand, or can be educated to understand, tuition discounting. In other words, you have to believe that all families in Wisconsin will come to know that the real cost of Madison will equal sticker price minus financial aid.

(2) Increases in tuition will always be tied to increases in financial aid as part of a conscious financing strategy and not occur as a stop-gap measure in response to a fiscal crisis (for example caused by an unexpected decline in state contributions or shortfall in foundation funds).

(3) Demand for a UW-Madison education is relatively inelastic.

(4) UW-Madison will continue to have a significant capacity to price discriminate (e.g. to offer much bigger discounts to some students compared to others).

Let's consider the merits of each assumption in turn.

Assumption #1: Sticker shock can be overcome. I have expressed great skepticism this is possible mainly because there isn't any evidence of a sticker shock campaign that's worked, and because a misunderstanding of discounting pervades many aspects of society (e.g. how many people know that you don't often pay MSRP for a car?).

Assumption #2: Increases in tuition will always be made thoughtfully and the UW-Madison will always increase aid as much as it increases tuition. This is key, for as University of Pennsylvania and famous political philosopher Amy Gutman has written:

"A morally troubling risk of a high-tuition, full scholarship policy is that in times of austerity, the two parts of the policy may be decoupled...The risk cannot be eliminated without doing away with democracy or the autonomy of universities, but it can be minimized by policies that tie tuition to levels of support...The commitment to economic nondiscrimination is thereby expressed by a single policy, rather than being the coincidence of two policies with independent rationales."

Assumption #3: Demand for a UW-Madison education will continue to grow, despite these changes. This is generally reasonable, but there isn't much evidence to suggest this will continue to be true for high-achieving residents if prices get closer to the levels charged by private, out-of-state institutions. In other words, as we become less of a good deal, they may go elsewhere. And, there's little reason to think that offering a lot more aid is going to make a big enough difference in the numbers of low-income students enrolled at Madison to offset the potential loss of other students.

Assumption #4: UW-Madison's students and their families will tolerate significant price discrimination. There is already some pushback from students who feel it's unfair that they have to pay full price while others get a deep discount. That divide will grow further. Moreover, the difference in res/nonres tuition will also expand.

To claim that the NBP will hold low-income students harmless and even increase affordability is to believe that all four assumptions hold. Do you?